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There is a wonderful piece in Businessweek (go here) by Hernando de Soto. He describes the industrial revolution as a time when a worldwide system was developed to codify economic facts. He writes, "The result was the invention of the first massive "public memory systems" to record and classify—in rule-bound, certified, and publicly accessible registries, titles, balance sheets, and statements of account—all the relevant knowledge available, whether intangible (stocks, commercial paper, deeds, ledgers, contracts, patents, companies, and promissory notes), or tangible (land, buildings, boats, machines, etc.). Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results. The final product was a revolutionary form of knowledge: "economic facts." He then asserts, "Over the past 20 years, Americans and Europeans have quietly gone about destroying these facts."
This argument really resonates with me. I prefer to have data and then to test if theory is relevant to explaining the data. I get frustrated with theory first. But that is the world today and De Soto does an amazing job of pointing out the reasons why and the consequences of destroying our common knowledge system.
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This article made me think of two things. One: freedom of information. The more that economic facts are destroyed, the less information there is available to consumers. Two: consumer confidence. Obviously, trust in the markets is a huge factor in the operation and condition of those markets. I was recently talking with a coworker of mine about the "economics is imaginary" argument, that whether a market is weak or strong only depends on whether consumer perceive the market (or the future of the market) to be weak or strong. I wonder what would happen to our markets if the constant negative market portrayal by the media turned hopeful.
ReplyDeleteI liked this article because if economic facts were allowed to be clear during this financial crisis, then the US would not have been able to grow with $15 trillion in debt. I think there wasn't necessarily a lack of knowledge but an instance of many moral hazards by Wall Street executives, banks, and the government.
ReplyDeleteI was really intrigued by the idea of perception of the market and consumer confidence based on economic facts or information. The media really does seem to be taking over. I wonder how our common knowledge system is with establishment of a new frontier of social media and the internet.
Agreeing with Beth, the destruction of public records moved away from the free market and moved the economy backwards.
ReplyDelete"in a few short decades the West undercut 150 years of legal reforms that made the global economy possible.
Great article.
ReplyDeleteDe Soto puts a clear light on deregulation and its consequences. I did not realize how large the shadow markets were/are....kind of insane.